Feb 21 In the Future, Iran's Biscuits Will Be Made by Robots

Some of Iran’s most popular biscuits are manufactured in a facility about an hour south of Tehran. In the tea drinking country of Iran, biscuits are a staple, served to guests in living rooms and boardrooms alike. The biscuit company in question has been in business for over 50 years and occupies several buildings which house production lines for butter biscuits, chocolate cookies, and flavored wafers.

While the scents are those of a bakery, the factory’s sights and sounds are completely industrial. Conveyor belts whir on several parallel production lines, arranged in the long central hall. The oldest equipment in operation was made in 1961 by English equipment maker Simon-Vicars and can bake 500 kilos of biscuits per hour. The majority of the equipment is made by Germany’s Werner & Pfleiderer, with two lines installed in the 1970s and a third line installed in the 1990s. These ovens can bake up to 900 kilos of biscuits per hour. The most modern equipment in the factory are the two Italian Imaforni ovens, purchased second-hand, which can bake up to 600 kilos of biscuits per hour. However, the Imaforni machines are often dormant.

Across the production lines, only the mixing, baking, and cooling processes are mechanized. Packaging of the biscuits is done by hand by teams stationed at the end of each line.

In a building next door to the main factory, the baking of more complex wafer cookies requires even more human input. Not only is packaging completed by hand, but the assembly of the wafers requires the sheets of pastry to be manually fed into the machine that applies the filling.

Altogether the factory employs just under 200 people and boasts a maximum production capacity of 11,000 tonnes per year. With dormant production lines, the output is really about half that figure. By way of comparison, Mondelez International’s factory at La Haye-Foussiere in France produces 45,000 tonnes of biscuits per year with just 450 employees. With greater automation, the La Haye-Foussiere factory employs just twice the number of workers to produce at least four times the biscuits each year.

The owners of the Iranian biscuit factory had one emphatic answer when asked what they would do a new injection of capital: “We would invest in automation.”

Last week, I wrote about the importance of the blue-collar workforce to Iran’s economic recovery, and how post-sanctions growth needs to serve this stakeholder group. While in the short-term, there is clear evidence that foreign direct investment will support the type of economic growth that drives job creation, in the longer-term, the relationship between investment and job creation is less linear. Workers know this and it explains lingering doubts among the working classes about the trajectory of Iran's economic development.

Automation looms large over industrial sectors around the world, and Iran is no different. The arrival of what is being called the “Fourth Industrial Revolution” was the focus of the 2016 World Economic Forum in Davos. The “Future of Jobs” report published during as part of the annual gathering made waves for its prediction of rapid and dramatic shifts in the composition of workforces worldwide. The report predicted over 1.6 million lost jobs in the manufacturing sector by 2020 across a sample of 20 countries that included developed economies such as the United States, Germany, and Japan, as well as rising economies such as China, India, Brazil and South Africa.

While Iran was not one of the country’s sampled in the report, the findings did cover Turkey, which is a strong proxy for Iran given the similar size and composition of its labor force. Employment in the manufacturing sector will actually increase in Turkey through 2020. Similar increases are forecasted for Mexico and South Africa. The report evidences how the pace of economic growth in emerging markets in the next 5-10 years will mean an expansion, rather than contraction in blue-collar jobs. The trend should hold true for Iran.

However, the report’s authors also note that the implementation of automation technologies will only begin to gain momentum globally between 2018 and 2020, when “Advanced robots with enhanced senses, dexterity, and intelligence” which “can be more practical than human labour in manufacturing” begin to account for a greater number of the roles on the production line. Realistically, the adoption of these expensive technologies in less-developed economies such as Iran will take place later, but as adoption increases the next generation of automation technologies will become less expensive in the same period when Iranian labor begins to grow more expensive as wages rise during the post-sanctions economic recovery. This combination of events will make automation even more appealing. Inbound investment will be used to improve efficiency and productivity in the manufacturing sector and capital intensive automation will be justified based on economies of scale made possible as Iran’s exports rebound.

Already, companies like German robotic arm manufacturer Kuka have helped modernize the assembly lines at Iran Khodro and other Iranian automakers. While such improvements to efficiency have helped Iran’s auto-industry become more competitive by international standards, thereby justifying the new wave of potential investment from the likes of Renault, Daimler, and Volkswagen, the long-term profitability of these sectors could depend on reductions to the workforce.

The experience of European automakers in their domestic markets is instructive. On average, a European Union auto worker produces the equivalent of 7 vehicles per year. In Iran, which has approximately 500,000 autoworkers and an annual vehicle production of about 1 million, the worker-to-vehicle productivity ratio is just 2. In the medium-term, an improvement in Iran’s productivity ratio would necessitate both increases in automation and also reductions to the workforce.

For the Rouhani administration, this presents a stark dilemma. How do you usher in an economic agenda to serve the people, if the new agenda will also usher in technologies that could upend employment opportunities for the working classes?

Over the last few years, many of Rouhani's critics have taken to labeling him a neoliberal, the implication being that his pursuit of economic growth will come at the expense of blue-collar workers. Rouhani's ability to address the concern will depend on his ability to ensure that "knowledge transfer" follows investment.

When asked how they intend to manage impending shifts in labor markets, 65% respondents in “Future of Jobs” report cited “reskilling current employees” as the fundamental strategy for basic industries, including blue-collar work such as manufacturing and construction. But while rich countries like Switzerland and Sweden that face this dilemma can experiment with ideas such as universal income or mass retraining of the workforce, for Iran, these issues are far more delicate.

As World Economic Forum founder Klaus Schwab and board member Richard Samans write in the preface of the report:

It is critical that businesses take an active role in supporting their current workforces through re-training, that individuals take a proactive approach to their own lifelong learning and that governments create the enabling environment, rapidly and creatively, to assist these efforts.

For the biscuit company, the opportunities to retrain staff for new roles are numerous. Whereas 200 individuals work in the company, just a dozen are involved in the distribution and sales of the company's products. There are essentially no formalized teams in sales and marketing, business services, retail partnerships, human resources, or corporate and legal affairs despite robust annual revenues. So while the overall proportion of manufacturing labor may decline, the growth of companies like the biscuit maker, should also open the door to opportunities in other job roles.

Looking to the breakdown of the Mondelez workforce in the UK, of the 5000 total employees, two-thirds are directly involved in manufacturing. By this standard the Iranian biscuit company should have nearly 10 times the current number of commercial staff given the size of the manufacturing staff.

Indeed, the "Future of Jobs Report" forecasts job growth in business and financial operations, management, and sales functions across the sampled countries. For Iran, the challenge will be to make sure blue-collar employees are empowered to make the leap into these new roles.